The rising cost of living

[bickster]

1 hour ago, foreveryoung said:

Agree, also makes people reduce there spending, which can't help.

 

That’s exactly what it is designed to do. Encourage saving not spending. If spending reduces, inflation comes down.

Trouble is, this inflation isn’t caused by the public overspending so the traditional economic models really don’t apply to this situation but they'll keep doing what they are doing because they know no different

[foreveryoung]

10 minutes ago, bickster said:

That’s exactly what it is designed to do. Encourage saving not spending. If spending reduces, inflation comes down.

Trouble is, this inflation isn’t caused by the public overspending so the traditional economic models really don’t apply to this situation but they'll keep doing what they are doing because they know no different

They obviously well out of touch if they think high interest rates makes people save. Again another advantage to the rich.

[Wainy316]

11 hours ago, bickster said:

That’s exactly what it is designed to do. Encourage saving not spending. If spending reduces, inflation comes down.

Trouble is, this inflation isn’t caused by the public overspending so the traditional economic models really don’t apply to this situation but they'll keep doing what they are doing because they know no different

Which is what perplexes me.  Surely people as qualified as the heads of the BoE do know this, so there must be some other agenda at play.

[Genie]

4 minutes ago, Wainy316 said:

Which is what perplexes me.  Surely people as qualified as the heads of the BoE do know this, so there must be some other agenda at play.

I think they need to be seen to be doing “something” and this is the only lever they have.

Its an easy win for them because inflation will come down in the second part of the year so they’ll claim it worked.

[The Fun Factory]

On 09/05/2023 at 21:42, Panto_Villan said:

Yeah, you're right it's logistically difficult. But I think any time you're having a serious discussion about whether it's worthwhile or not to melt them down, it's an indication you probably shouldn't be bothering to make those coins. After all, they'll lose value relative to the metals used to make them as time goes on due to inflation, and you'd expect newly minted coins to last 30+ years. At some point melting them down will become economically viable.

I think there's also more boring accounting reasons why it's a bad idea to make coins that cost more than their face value, too. I think if you create money, you're basically creating an asset for the government - effectively you're creating money out of nothing that you can spend on things, which is a great trick to be able to do (although do it too much and you get inflation). But if you're spending £5m to create £1m then that's wasting £4m the government can't then spend on other things. Although I guess they could just print £4m of £50 notes as well, to cancel it out - but again then you're in a situation where you're doing complicated things just to be able to create some coins that are of kinda debatable utility in the first place.

EDIT - actually, you've sent me off down a bit of a wikipedia rabbit hole. Turns out people melting down coins was actually a genuine problem in relatively recent times. Pre-1965 the US had half-dollar coins made of 90% silver, and after 1965 they made new ones with 40% silver. What that meant was people looked at the dates on the coins and hoarded the ones that were 90% silver and bought things with the 40% silver ones instead, and as inflation steadily eroded the value of the dollar the silver became more valuable than the coin itself and they were melted down. Then in 1971 they introduced a no-silver half dollar and people immediately started hoarding the 40% silver ones, and the same thing eventually happened.

You can just google Gresham's Law if you're interested.

Yes, as will be shown in the upcoming Shane Meadows drama, The Gallows Pole.

[StefanAVFC]

Good explainer on the relationship between inflation and interest rates

 

[KentVillan]

14 hours ago, foreveryoung said:

They obviously well out of touch if they think high interest rates makes people save. Again another advantage to the rich.

“At the margins” as economists say, it will make more people save. It won’t necessarily make *most* people save, but it will probably have the desired effect… in a very blunt and painful way.

Think the local elections show how many different factors are combining to hit all different sections of society. Homeowners, renters, wealthy, poor, all experiencing rising costs, drop in living standards, and broken public services.

Wealthy will obviously handle it a lot better because they can, but when they turn on the Tories it’s the end of the road for Sunak.

Think it’s going to be a really rough 2 or 3 years, maybe longer.

[foreveryoung]

Chatting to a pal today at work, who's a bit flush, he said the banks have hardly passed the higher interest rates onto savers etc. So are unsure what the fick they are doing it for????

[Seat68]

4 minutes ago, foreveryoung said:

Chatting to a pal today at work, who's a bit flush, he said the banks have hardly passed the higher interest rates onto savers etc. So are unsure what the fick they are doing it for????

Not sure about that, the saver rate at my bank Halifax is relatively in line.

[foreveryoung]

1 minute ago, Seat68 said:

Not sure about that, the saver rate at my bank Halifax is relatively in line.

Up to date, I.e today?

[Seat68]

1 minute ago, foreveryoung said:

Up to date, I.e today?

No, informed about mortgage rates by them but not saver rates. They do have a fixed term saver account at 5.50% but all others are at 4.20% or below.

[Genie]

8 minutes ago, foreveryoung said:

Up to date, I.e today?

I just had an email from Chase to say their online saver has gone up from 3.1% to 3.3%. 

[foreveryoung]

I can see it has increased slightly, but still cannot see how it helps the majority, unlesss you have a couple of million of disposable income.

 

[bickster]

1 hour ago, foreveryoung said:

I can see it has increased slightly, but still cannot see how it helps the majority, unlesss you have a couple of million of disposable income.

 

It’s not meant to help anyone, it’s meant to help the economy by persuading some people to save and not spend, which means demand for certain goods should drop, which will lead to lower inflation.

The elephant in the room this time is that the driver for inflation is the price of oil because of the Ukraine situation. That’s a global phenomenon but on top of that we still have a global Covid hangover with prices (esp with cars and tech) and in the UK there is additional Brexit pressures on prices plus sky high property prices

Raising interest rates like they are doing might affect the property prices but as there is such a shortfall of property and few can afford to get on the property ladder, it’s doubtful whether raising interest rates will even touch the sides even with the property market and it will have next to no effect on the other pressures

[desensitized43]

What pisses me off most about all this is that what they’re trying to do is get inflation down to 2% again. Prices will still be what they are now just not rising to the level they were.

Prices need to come down not rise by less. The economic model of the west is totally **** and has been for decades now.

[foreveryoung]

It's worrying interest rates went from 0.5 to 4+ with hardly making any difference to inflation.

I think the problem we have this time is, we are in a culture where people don't stop spending like they used to. People now would rather run up mountains of debt regardless of interest rates, to have the luxuries, rather than do without them.  The huge energy bills didnt seem to make alot of difference, only really effecting people who were struggling before.

[sidcow]

11 minutes ago, foreveryoung said:

It's worrying interest rates went from 0.5 to 4+ with hardly making any difference to inflation.

I think the problem we have this time is, we are in a culture where people don't stop spending like they used to. People now would rather run up mountains of debt regardless of interest rates, to have the luxuries, rather than do without them.  The huge energy bills didnt seem to make alot of difference, only really effecting people who were struggling before.

I think the point is, inflation is not due to people's spending. 

The heat and power costs to make or supply X has increased massively. They literally can't make or supply X for the same price as before even if people keep buying them in the same numbers as before. 

If they sell less X isn't suddenly going to get cheaper because it's the power driving the cost of the increase, nothing else. 

OK maybe round the edges selling less consumer electronics might ease demand in chips say, but overall its mainly about power. 

Edited May 11, 2023 by sidcow

[Xela]

If you go out to pubs/bars/restaurants, they are all rammed. Tour operators reckon they'll be back to near pre pandemic levels this year. People are spending strongly still.

Whether they have a more "**** it, lets enjoy life" mentality after covid, who knows, but things in certain sectors are booming. 

[sidcow]

What definitely will cause wage inflation is people chasing wage rises to pay for increased mortgage costs. They'll be more demanding of employers and they'll move jobs for better wages because it's that or lose the house. 

When people leave employers can't get new people in to the job at the same wage so they have to offer higher wages to get the new guy in who's having the same problem. 

We're certainly seeing a lot of that in insurance at the moment. Employers all chasing people. 

Edited May 11, 2023 by sidcow

[Demitri_C]

I think we have to be a bit realistic we had it good that interest rates were so low for so long. I cant see it getting back to under 1% for a very long time (if ever) 

But it badly needs to come down from the current 4.7% they have it. Thats ridiculously high and long term people cant afford that on top of everything else thats gone up.